Economist says oil spill helps renewable fuels

KANSAS CITY Wed Jun 9, 2010 6:00am IST

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KANSAS CITY (Reuters) - Renewable fuels like corn-based ethanol will get a boost as the massive oil spill in the Gulf of Mexico feeds worries by Americans about long-term dependence on oil, a top U.S. private agricultural economist said on Tuesday.

"The spill has heightened the concern about our dependence on fossil fuels so that quite naturally is causing people to want us to reduce our dependence on fossil fuels. That brings us to renewables," JB Penn, chief economist at farm equipment maker John Deere, said in an interview on the sidelines at a Kansas City Federal Reserve ag banking meeting.

"Agriculture so far is the only big source of renewable fuels. We talk a lot about next-generation renewables -- but corn ethanol is about the only thing we've seen in the U.S. and sugar ethanol in South America," said Penn, a former undersecretary at the U.S. Agriculture Department.

The Obama administration is expected to push for energy reform including grain-based biofuels. Obama is from Illinois, a major corn and soybean producing state.

Roughly one-third of the annual U.S. corn crop, or more than 4 billion bushels of corn is turned into fuel. The Bush administration and Congress three years ago pushed to wean U.S. Americans off petroleum fuel by increasing the ethanol usage.

Ethanol lost favor amid skyrocketing commodity prices in the summer of 2008 when Chicago Board of Trade spot corn prices rose to an all-time high of $7.65 a bushel, with many consumer groups blaming ethanol as a major contributor of high grain prices.

But BP's seven-week leaking oil spill is turning the tide for fuels produced from foods.

A bill in the U.S. Senate retains a proposed one-year revival of an expired $1 a gallon tax credit for biodiesel -- made mostly for soybean oil. A Senate vote was not expected before next week.

Additionally, the U.S. biofuels industry is waiting word from the Environmental Protection Agency this summer on whether it will raise the U.S. fuel blend rate from 10 percent ethanol to as much as 15 percent.

"I just think the overall environment around this discussion is likely to be more positive toward renewable fuels because of the spill," Penn said.

(Reporting by Christine Stebbins; Editing by Richard Chang)

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